Nov. 7 (Bloomberg) -- Capital spending at U.S. companies
from Apple Inc. to 3M Co. is at the highest level since 2008 as
upgrades to plants, property and equipment show some executives
embracing the likelihood that the economy averts recession.

Expenditures rose 24 percent to $43.3 billion in the third
quarter for 140 non-financial companies in the Standard & Poor’s
500 that had released such data as of Nov. 4. Starting with
Alcoa Inc.’s earnings report on Oct. 11, spending last quarter
was the most since the end of 2010. Year-to-date investments of
$149 billion are the highest since 2008, the analysis shows.

Corporate investment in equipment and software climbed at a
17.4 percent annual pace in the third quarter, and earnings per
share for S&P 500 companies have jumped 16 percent so far. While
economic growth is slow, it’s enough to spur investment, said
Frederic Dickson, who helps oversee $28 billion as chief market
strategist for D.A. Davidson & Co. in Lake Oswego, Oregon.

“A lot of companies postponed upgrading facilities,
hardware and technology given the fact they were fearing the
economy would go back into recession,” Dickson said. “Now that
they feel more comfortable the economy has skated around
recession, they’re making necessary expenditures.”

U.S. gross domestic product rose at a 2.5 percent rate last
quarter to $13.35 trillion, topping for the first time the peak
of $13.33 trillion in the last three months of 2007.
Expectations are for further expansion, and for inflation, which
would make it more costly to sit on cash, said Michael Gayed,
chief investment strategist with Pension Partners LLC.

2008 Peak

“It’s indicative of some kind of an expectation of a
rebound of sorts going on in the next one to two years,” said
Gayed, whose New York-based company oversees about $140 million.

Apple more than doubled expenditures to $1.6 billion in the
third quarter from a year earlier, International Business
Machines Corp. boosted spending 55 percent to $1.3 billion,
while Diamond Offshore Drilling Inc. invested $543 million, an
almost sixfold increase.

Annual capital spending for S&P 500 companies had tumbled
as a result of the recession that began in December 2007 and
ended in June 2009. The $149 billion in expenditures so far this
year for the 140 companies screened, surpasses the $146 billion
that the same companies spent last year and is just short of the
$169 billion peak for 2008.

Apple’s spending began rising faster than sales this year
after it had tracked sales growth for years, Ben Reitzes, a New
York-based analyst with Barclays PLC, said in a Nov. 2 report.
The stepped-up investment at Cupertino, California-based Apple,
the world’s second-biggest maker of smartphones, “illustrates
some Apple optimism on prospects over the long term,” he said.

Economic Headwinds

Spending by companies is still unlikely to surpass the 2008
peak until consumer demand shows clear signs of recovery, said
Ryan Wang, an economist with HSBC Holdings Plc in New York, who
predicts GDP growth of 1.8 percent for this year and next.

“There still are a lot of headwinds for the consumer,”
Wang said. “That’s going to keep growth moderate.”

Consumer purchases increased 0.6 percent in September,
helping propel the world’s largest economy through the third
quarter while policy makers moved to spur growth and hiring.
Without a pickup in incomes, which rose 0.1 percent, households
may be unable to maintain spending. Consumer confidence also
fell last week to its lowest level since the first quarter of
2009, the Bloomberg Consumer Comfort Index shows.

Companies in industries such as oil, gas and mining,
including Diamond and Halliburton Co., maintained spending
during the recession, Wang said. Companies tied to home
construction, such as Chicago-based wallboard producer USG
Corp., slashed spending and have kept it at a minimum, he said.

IBM, 3M

IBM, the biggest computer-services provider, has spent to
boost sales in business initiatives such as Smarter Planet,
business analytics and cloud services, Chief Financial Officer
Mark Loughridge said on an Oct. 17 conference call with analysts
to discuss third-quarter earnings. Sales have doubled this year
for cloud services, increased 50 percent for Smarter Planet and
risen 20 percent for business analytics, he said.

“The investments we’ve made in key growth initiatives are
paying off and drove our revenue performance this quarter,” he
said. Since 2000, Armonk, New York-based IBM has made capital
expenditures of $43 billion, according to the company’s website.

3M is investing $1.3 billion to $1.5 billion a year, mostly
in international markets, CFO David Meline said in a conference
call with analysts on Nov. 3. The St. Paul, Minnesota-based
company wants to produce more in international markets that have
higher growth rates, he said. Spending on current businesses is
a priority over acquisitions because the investment generates
return on capital of more than 20 percent, he said.

Positive Sign

“We’re in a cycle now where we’re running with a capital
investment that’s pretty strong,” Meline said. “That’s
primarily driven by growth of our volume and activity in our
international businesses as we localize more production.”

Companies may be boosting capital expenditures now before a
tax benefit from accelerated depreciation on investments ends in
December unless extended by Congress, Wang of HSBC said.

“Companies have stated that part of their capital
expenditures are indeed intended to take advantage of that
accelerated depreciation that’s available,” Wang said.

The recovery in capital expenditures is still a step in the
right direction, he said.

“It just says that final demand is growing so that’s a
positive sign and we’ll have to see if it keeps going,” Wang
said.